The British retailer is
starting to feel the heat as analysts and investors raise the bar regarding
Next’s performance during the crucial holiday season.

Next presented a trading update for the three months to 30 September on
November 1, again lifting its full year profit guidance, reporting
third-quarter sales growth but warning that its performance has been
“extremely volatile” and highly dependent on the weather.

In precisely this sales volatility that rang the alarms for analysts
covering the stock, with Neil Wilson, senior market analyst at ETX Capital,
saying “Most worrying, Next says sales volatility makes it ‘very hard to
determine any underlying sales trend’. This poses significant problems for
investors."

Wilson, senior market analyst at ETX Capital noted that a cooler August
and September meant shoppers bought warmer clothes and sales were up
significantly on last year. The expert added that industry-wide textile,
clothing and footwear sales were up 7.2% in September, according to recent
Office for National Statistics data, but October is looking a lot less
impressive for Next with full price sales down in every week from last
year.

But, he added: “Next better hope that British shoppers are a little less
fickle than the weather because sales performance is so volatile the firm
has no idea what to expect over the vital Christmas trading period. “This
is a worry, although there does seem to an improving trend in sales growth
throughout the year that may calm nervous investors.”

Commenting the results for ‘Proactive Investor UK’, AJ Bell investment
director, Russ Mould said: “What seems to have upset the market are the
references to volatile trading, unhelpful weather and a forecast which
implies sales in the fourth quarter and therefore the vital Christmas
period, will be slightly down on where they were a year ago.”

“Analysts are already forecasting three straight years of flat-to-down
profits and only three of the 25 brokers who follow Next are buyers of the
stock – by contrast, nine rate the shares as a ‘sell’,” added Mould. To
conclude, AJ Bell expert highlighted that “When times are tough there is a
tendency to over-extrapolate from the present and assume that things will
always get worse (or always get better).”

On a more positive note, Fiona Cincotta, Senior Market Analyst at City
Index, called out how “At least, some stability has returned to Next's
trading outlook after a topsy turvy start to the year that included three
separate guidance changes. This time, the company has reiterated its annual
profit forecast, albeit with a slight tweak.”

“The growth in directory sales is impressive, easily outshining the
already strong growth rate recorded in the second quarter. That should go
some way to offsetting concerns about the slide in bricks-and-mortar store
sales, which is continuing apace. All eyes will now be on the crucial
Christmas trading period and whether Next can shake the current trend of
poorer clearance rates going into end-of-year sales," stated Cincotta.